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Dishonour of Cheque.What next?


Concept And Meaning Of Dishonor Of Cheque And Reasons For Dishonor

The bank should pay the amount mentioned on the cheque as


soon as it is presented. If the amount of cheque is paid by the
bank to the payee, the cheque is said to be honored. If the bank
refuses to pay the amount of cheque, then the cheque is said to
be dishonored. Thus the dishonored of the cheque means the
refusal by the bank to pay the amount of cheque to the payee. It
is a condition in which the bank does not pay the amount of the
cheque to the payee. In fact, when the drawer draws the cheque
without following all the rules of issuing cheque or when he/she
draws the cheque exceeding the bank balance then the bank
dishonors the cheque.
Following are the some important reasons for dishonoring a cheque
* If the date is not written or written incorrectly or the date given is of three months
before or if the advance date is given.
* If the name of the payee is not written or not written clearly.
* If the ordered or crossed cheques are transferred without proper endorsement and
delivery.
* If the amount is not written in words and figures or written incorrectly or if the
amount written in words and figures does not match with each other.
* If the alteration made on the cheque is not proved by the drawer giving signature.
* If the account number is not mentioned or if it is not clear or if it is not mentioned
clearly.
* If the signature is not given or if the signature given in the cheque does not match
with the signature given on the signature specification card kept by the bank.
KINDS OF DISHONOUR OF CHEQUE
1. Dishonour by non-acceptance

. 2. Dishonour by non-payment

Dishonour by non- acceptance.

Presentment for acceptance is required


only in the case of a bill of exchange. Usually acceptance and payment go together
and this usually happens in case an instrument is payable after sight, thus often it is
difficult to distinguish the two because dishonour by non-payment is usually
dishonour by non-acceptance, and thus it is only this bill of exchange which can be
dishonoured by non-acceptance and not a cheque as in the case of a cheque no
acceptance is required to be taken to the banker and cheques are mainly
instruments payable.

Dishonour by non-payment. A negotiable instrument is said to be


dishonoured by non-payment when the drawee of a cheque makes default in
payment upon being duly required to pay the same. Payment countermanded:
When the drawer of the cheques issues instructions to the bank not to make

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any payment of a particular cheque issued by him, the bank then stands revoked
from making payment on that cheque, this is known as countermand of cheques by
the drawer.

Insufficiency of funds:

When there are no funds to meet the cheque or the


account of the drawer does not hold sufficient funds to meet the whole credit
amount of the cheque, the banker is then justified in refusing the payment of such a
cheque. However where the account has sufficient funds, the banker is under an
obligation to its customer of honouring the cheque presented to it.

Non-applicability of funds: It is the bankers duty to honour the cheque


when funds which are lying in the account of the drawer are applicable for the
purpose. Thus when the funds in the account are lying for other purposes, the will
necessarily dishonour the cheque presented before it for payment.

If a cheque is dishonoured
When a cheque is dishonoured, the drawee bank immediately issues a Cheque Return Memo to
the banker of the payee mentioning the reason for non-payment. The payees banker then gives
the dishonoured cheque and the memo to the payee. The holder or payee can resubmit the cheque
within three months of the date on it, if he believes it will be honoured the second time.
However, if the cheque issuer fails to make a payment, then the payee has the right to prosecute
the drawer legally.
The payee may legally sue the defaulter / drawer for dishonour of cheque only if the amount
mentioned in the cheque is towards discharge of a debt or any other liability of the defaulter
towards payee.
If the cheque was issued as a gift, towards lending a loan or for unlawful purposes, then the
drawer cannot be prosecuted in such cases.
Legal action
The Negotiable Instruments Act, 1881 is applicable for the cases of dishonour of cheque. This
Act has been amended many times since 1881.

According to Section 138 of the Act, the dishonour of cheque is a criminal offence and is
punishable by imprisonment up to two years or with monetary penalty or with both.
If payee decides to proceed legally, then the drawer should be given a chance of repaying the
cheque amount immediately. Such a chance has to be given only in the form of notice in writing.
The payee has to sent the notice to the drawer with 30 days from the date of receiving Cheque
Return Memo from the bank. The notice should mention that the cheque amount has to be paid
to the payee within 15 days from the date of receipt of the notice by the drawer. If the cheque
issuer fails to make a fresh payment within 30 days of receiving the notice, the payee has the
right to file a criminal complaint under Section 138 of the Negotiable Instruments Act.
However, the complaint should be registered in a magistrates court within a month of the expiry
of the notice period. It is essential in this case to consult an advocate who is well versed and
experienced in this area of practice to proceed further in the matter.
Fine points: Conditions for prosecution
Legally, certain conditions have to be fulfilled in order to use the provisions of Section 138.
The cheque should have been drawn by the drawer on an account maintained by him.
The cheque should have been returned or dishonoured because of insufficient funds in the
drawer's account.
The cheque is issued towards discharge of a debt or legal liability.
After receiving the notice, if the drawer doesn't make the payment within 15 days from the day
of receiving the notice, then he commits an offence punishable under Section 138 of the
Negotiable Instruments Act.
Punishment & penalty
On receiving the complaint, along with an affidavit and relevant paper trail, the court will issue
summons and hear the matter. If found guilty, the defaulter can be punished with monetary
penalty which may be twice the amount of the cheque or imprisonment for a term which may be
extended to two years or both. The bank also has the right to stop the cheque book facility and
close the account for repeat offences of bounced cheques.

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If the drawer makes payment of the cheque amount within 15 days from the date of receipt of the
notice, then drawer does not commit any offence. Otherwise, the payee may proceed to file a
complaint in the court of the jurisdictional magistrate within one month from the date of expiry
of 15 days prescribed in the notice.